In:
Macroeconomic Dynamics, Cambridge University Press (CUP), Vol. 19, No. 8 ( 2015-12), p. 1816-1838
Abstract:
This paper investigates the effects of R & D subsidies on aggregate product variety and endogenous productivity growth without scale effects. In a two-country model with imperfect knowledge diffusion, the larger country has a greater share of firms with higher productivity levels. The concentration of relatively productive firms increases knowledge flows between firms, causing an increase in firm-level employment in innovation. Accordingly, the aggregate growth rate is higher when counties are asymmetric than when they are similar in size. The larger scale of firm-level innovation activity reduces market entry, however, and aggregate product variety falls. In this framework, national R & D subsidies have positive effects on the industry share, relative productivity, and wage rate of the implementing country. If the smaller country introduces an R & D subsidy, aggregate product variety rises and productivity growth falls. If the larger country introduces an R & D subsidy, productivity growth rises, but aggregate product variety may rise or fall.
Type of Medium:
Online Resource
ISSN:
1365-1005
,
1469-8056
DOI:
10.1017/S1365100514000121
Language:
English
Publisher:
Cambridge University Press (CUP)
Publication Date:
2015
detail.hit.zdb_id:
1501533-6
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